MNI NORGES WATCH: Focus On Norges Banks' Rate Cut Timing
MNI (LONDON) - Norges Bank is widely expected to leave its policy rate on hold at 4.5% at its December meeting, completing a full year at that level, with investors focussed on indications of the likely timing of cuts in updated forecasts and guidance.
The previous full set of forecasts, from September, showed a Q1 cut was near inevitable but left analysts debating whether it would come in the January or March meeting, with March seen by many as most likely. Governor Ida Wolden Bache Wolden Bache could choose to tilt clearly in favour of one or other of these months this week.
November’s guidance from the Monetary Policy and Financial Stability Committee, which was for the policy rate to be kept 4.5% to the end of 2024, will also need to be updated.
The September forecasts showed the policy rate declining to 4.1% in 2025, 3.3% in 2026 and to 2.8% in 2027, and changes could be marginal, with Norges Bank's Executive Director Monetary Policy Ole Christian Bech-Moen telling a Nordea seminar last month that the outlook did not appear to have changed materially.
He highlighted the importance of the hefty krone depreciation seen around mid-year for the inflation outlook, with some evidence that the pass through to prices may have been quicker than in previous episodes and that much of its impact may already have been felt. (See MNI: Signs FX Affecting Prices Faster - Norges Bank Director)
The central bank's Q4 business survey, its Regional Network Report, found firms had revised up their 2025 wage growth estimates to 4.5% from 4.3% previously, but down from 5.2% for 2024, while activity expectations were little changed.
Inflation has been running above target, with the core CPI-ATE target measure at 3.0% on the year in November, bang-in-line with Norges Bank's forecast.
In its November Monetary Policy Assessment, the Committee said that policy would need to remain restrictive, while noting that inflation over the past year had fallen faster from its peak than expected but that the krone had been somewhat weaker than assumed.
This mix of concerns over the risk of renewed krone weakness and inflation being still above target is likely to see the Norwegian central bank delivering another cautious message over the extent and pace of easing in December.